Paid in capital

Paid in capital is the payments received from investors in exchange for an entity's stock. This is one of the key components of the total equity of a business. Paid in capital can involve either common stock or preferred stock. These funds only come from the sale of stock directly to investors by the issuer; it is not derived from the sale of stock on the secondary market between investors, nor from any operating activities.

Paid in capital is only comprised of funds received from the sale of stock; it does not include proceeds from ongoing company operations.

Paid in capital is somewhat different from the term additional paid-in capital, because paid in capital includes both the par value of stock sold and the additional paid-in capital representing the price at which stock is sold above the par value. Thus, the formula for paid in capital is:

Paid in capital = Par value + Additional paid in capital

An alternative meaning is that paid in capital equals additional paid in capital, so that par value is excluded from the definition. Thus, you need to be clear on the definition when discussing paid in capital with other people who may have a different concept of the term.

Paid in capital is also known as contributed capital.

Related Courses

The Balance Sheet 
The Interpretation of Financial Statements